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I can almost understand what they were trying to do. The past few election cycles I've been looking at the Iowa Electronic Markets, which do essentially the same thing, but with national elections -- people trade shares on presidential candidates (or control of the House and Senate), based on who they think will win. They have winner-take all trading (shares of losing candidates go to zero) and some sort of proportional trading. I never joined, but I've watched it, and it can be a fairly good indicator (I think it called the '96 election to within a couple of points, but to be honest I can't recall how the 2000 market turned out -- I'll have to re-visit).
So, I figure someone thought that they could use the "power of the marketplace" as a predictive tool for other things, like terror attacks and mideast stability.
Personally, I find the concept ghoulish. Trading on candidacies is one thing, but trading on political assassinations and terrorist attacks is another. Besides, I'm not sure how predictive it would be -- they'd either need a REALLY huge market with myriads of possibilities to trade, or they'd need really vague predictions. Neither option seems particularly useful. Plus, if people know that the government is going to act on the high-value "commodities", that will artificially suppress the price. That is, there's an inevitable outside influence on the market that probably impacts any predictive capability it might have.
Or maybe the administration was hoping that al-Queda would try to make a quick buck and tip their hand....
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